Guerras and Navas, 2022 (v.

Chapter Two: Strategic Analysis

Topic 2. The strategic goals and the value system of the firm

2.1. Mission, vision and strategic objectives

2.2. The stakeholders of the firm

2.3. Corporate Governance
2.4. Corporate Social Responsibility and Business Ethics

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Goals of the chapter

Justify the importance of the company’s future orientation

through the vision, mission, and values as guidelines for creating a
busi ness project.

Identify the strategic obje ctives that will allow management to

achieved a defined vision and mission.

Justify the compa ny’s basi c generic objectives of improving its

performance through value creation

Identify the different ways to measure performance, especially

those aimed at value creation.

© Guerras and Navas, 2022 (v

Goals of the chapter

I dentify corporate stakeholders of a firm and their interests

Identify the company’s Corporate Governance

Identify various Corporate Social Responsibility with its benefits and costs.

Identify Business ethics

© Guerras and Navas, 2022 (v

 Defining the future orientation of the company

EITH AND
ER
S

Vision
where d o yo u want to take
Mission the company?

Goals strategic

Values

Application Source: Adapted from Dess et al. © Guerras and Navas, 2022 (v
The
vision
How will we be?, How should we be?
What should we be in the future?

Essential Ideas

Incorporate the deep It is stable over time

ideas of triumph

It must be worth the effort and

commitment of everyone
Leader © Guerras and Navas, 2022 (v
Characteristics of Vision

Benefits Creation of Worth

Clear
Concise
Abstract. Future-oriented

Stable Challenging. Inspiring

© Guerras and Navas, 2022 (v

 The mission

What is the essence of our business and ?

What do we want it to be?

Characteristic
s
Reason of be of the
Reference to the identity
company
(project vital)

Element of Stability temporary…

ID although can change
© Guerras and Navas, 2022 (v
 Mission definition: variables

The definition of the

1 field of activity

The Identification of the

essential skills 2

Values, beliefs,
3 philosophy, princ ipl es

Application 23 © Guerras and Navas, 2022 (v

The definition of the mission: Ways of defining
it

Broad Narrow

Greate r discr etion Increased Focus

Explicit Implicit

Written Unwritten
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 The values
Principles, beliefs, Standards, and commitments
that are intended to guide the company’s
performance in the achievement of the vision and
mission
Vision

The end does not justifies the means

Mission
Values

© Guerras and Navas, 2022 (v

 Definition of Values: Three important
Aspects

Sets of Pri nc iples Commitment to Commitment to

that guide ethi cal stakeho lders
dec isions and behaviours (Social
acti ons (B usi ness Respon sibilities &
Ethic s) Sus tainab ility

Application 2.4 © Guerras and Navas, 2022 (v

 The values:
characteristics
Consistency?

Values Reality

Define Behavior
Other features
Shared in
Explicit either
the organization
implicit

They are part of the Relationship with

Organizational culture ethics,CSR and
Leader sustainability
Application © Guerras and Navas, 2022 (v
Characteristics Strategic Objectives
Elements for a good definition Additional criteria:
1 A Measurable attribute
Suitable
(Improve internationalization)

2 A scale to measure attribute Successive

(Foreign sales /Total sales)

3 A level to be achieved
(50% of sales abroad)
Realistic

Challenging
4 A time frame for achievement
(In 2 years)
)Source: Guerras and Navas (2022
 Types of Strategic Objectives

Application Source: Guerras and Navas © Guerras and Navas, 2022 (v

Company Performance

Performance = Results = Success

What is the purpose of measuring

performance?
Guiding Criteria for Evaluate the degree of Evaluate the quality of
strategic decisions success or failure of the the management team
company

Problems with performance

measurement
There are different The way of defining and Each form affects each
ways of defining it and measuring it is not harmless inter est group in a
measuring it to the result. different way.

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 Performance (Economic-financial Theory)

1 Priority interest group 2 Shareholders’ interest

Re turn on investment
Shareholders-owners
(dividends + capital gains.)

3 Shareholders’ objectives 4 Business Objectives

Maximizing the value of Maximizing the value of the

your investment compa ny in the mar ket (Value
creation)

Problem: most of the companies are not listed

© Guerras and Navas, 2022 (v
 Criteria for Performance Measurement

Profit/ Value of the

profitability company

Absolutes
Accounting • Gross Operating Margin
• EBITDA (Gross operating profit) Theoretical Value
Profit • EBIT (Net operat ing profit )
Accounting • Net Profit

indicators
Relatives Value of
• Gross margin/sales market
• ROA: Economic profitability
• ROE: Financi al profitability
Economic
Benefits
Economic VAT: Economic Added value
indicators

Source: Guerras and Navas © Guerras and Navas, 2022 (v

 Accounting Profit and Economic Profit
Accounting profit
• Difference between Re ve nue s and expenses
corr esponding to a per iod of time.
• Difference between the book val ue o f the c ompany’s
ca pi tal at t he end and at the begi nning of the period

Economic benefit
• Company’s surplus taki ng i nto ac count the cost of product ive
factor s i nc ludi ng e quity.
• Difference between the market value of the company at the end
and at the beginni ng of the fina ncia l year .
Application © Guerras and Navas, 2022 (v
 Absolute Accounting
Indicators
Sales
Origin of the company’s profitability
Gross
Operating Operating and
Margin administrative
expenses

Amortization and
provisions
Gross
Operating
Cost of Margin Gross
(GOM) Operating Interests and
sales Net operating taxes
Profit
Profit
(EBITDA)
(EBIT o r
Net Profit
EAIT)
(NP)

Source: Guerras and Navas © Guerras and Navas, 2022 (v

 Relative Accounting
Indicators
Net profit problems
Influenced by criteria
It is calculated at Absolute measu re of
valuation and accrual
his torical cost profit
calculation

Relative measures of
Gross Margin on profitability
Economic Financial
sales Profitability Profitability

GOM Operating Profit Net Profit

GM/S = ROA = ROE =
Sales Assets Equity

© Guerras and Navas, 2022 (v

Economic Indicators: Economic Value Added
Economic Value added
(EVA)
Excess value that a company generates after
Taking into account the financial cost of the assets

How to measure
it Book value
of assets
EVA = EBIAT – (k . A)

Earnings before interests Average Cost of capital

and taxes invested
© Guerras and Navas, 2022 (v
 Valuation of EVA (Economic Value added)
Advantage It refers to the concept o f
s
It can be obtained
ec on om ic ben efi ts

for listed and unlisted

Includes risk when companies
considering the cost of the
own capital (equity) Good indicator of the quality
Ap pr o pr iat e gu id anc e for of the co m pa ny’ s management
strategic decision-making

Limitations
Uses historical data, d oe s no t Difficulty in estimating the cost
Not an indicator of ta ke in to acc o un t of equity
Value creation expectations

© Guerras and Navas, 2022 (v

Measuring Performance through value
Value of things
Company Value
(for Shareholders)
Quality for which one is willing
Capacity to generate income or benefits by
to pay a certain sum of money
virtue of which one is willing to pay for its
or equivalent to possess them
possession

Intimate relationship between profitability (expectations) and value creation

Two approaches
2)Market
1 1) Theoretical 2 value
value
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 Theoretical Value of a company

Valuing the company as an investment proje ct of the futur e

Net pr ese nt value of gener ated future cash flows

discounted at a rate adjusted for inflation and risk

Factors on which it
depends
1 Cash Flows
2 Time
3 Rate of discount
(Cost of the capital)

Cost of money Company risk Level/ Market Premium

appetite
© Guerras and Navas, 2022 (v
 Market Value of a company
Market Capitalization Absolute Value
creation
Number of shares times Difference between the market value
the price of each share at two different points in time

Key idea
Knowing when the company is creating val ue a nd when it is destroying it

>1 Value has been created

Most used (historical)
=1 It has neither been created nor destroyed
EVA Indicator CI
<1 Value has been destroyed
© Guerras and Navas, 2022 (v
 Value Creation Index
(VCI)
EVA RFA - g
Basic =
relationship CI Ke - g
g = b . RFA

Condition for RFA > Ke TR > 0

value creation

RFA > 1 (creation)

Index of = 1 (indifference)
value creation Ke
< 1 (destruction)
© Guerras and Navas, 2022 (v
Corporate Stakeholders
Stakeholders

Are people or groups of people related to a firm who have their own objectives, whereby the
achievement of these objectives is linked to the firm’s operations

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Corporate Stakeholders
Stakeholder Map
It is use to identify major stakeholders and classify them according to their
importance and possible impact upon the firm’s objectives

Three Significant features:

1. Power: refers to the real possibility of imposing one’s own objectives on other stakeholders
2. Legitimacy: refers to the perception that a stakeholder’s objectives are socially desirable or accepted
3. Urgency: is associated with a stakeholder’s interest in exercising influence to achieve its objectives

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Corporate Governance
Concept Corporate Governance
Each company will choose the governance
The issue of shareholder control mechanism(s) it deems most suitable bearing
over management and the in mind the cost, time, and resources each
mechanisms available for exercising one involves as regards their efficacy in
that control increasing company’s value

The main mechanisms may be classified into:

1)internal: Direct supervision & incentivization of top management
2)external: market competition

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Corporate Governance:

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Corporate Value
A firm’s values cover the set of
principles, beliefs, standards and Values
commitments designed to steer They are operating guidelines that seek to
its progress toward the influence how the organization’s members
achievement of its vision and conduct their business (Grant, 2016)
mission

Value reflects how a firm relates to its stakeholders, which is

encapsulated in two aspects: corporate social responsibility and
Business ethics
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Corporate Social Responsibility (CSR)
Concept:
Key Aspects:
CSR refers to a firm’s approach to the
demand of a social nature made by society in 1. it transforms the classical governance formula
response to its operations, to compensate for 2. it modifies the decision-making process
social costs it generates. 3. Voluntary application

Contents assigned to Corporate Social responsibilities:

1. Economic-functional area: production of goods and services the society requires
2. Quality of life Area: Raising/Lowering the standard of living in society/mitigating
externalities
3. Social action or investment area: Resolving issues in the community through
financial and human resources Guerras and Navas, 2022 (v.
Factors with an Influence on CSR

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Factors with an Influence on CSR
4 main factors:

1. Legal Factors: Legal influences are determined by respect for the laws and regulations with which society, chooses to
furnish itself. This is the minimum threshold companies are required to observe

2. Politica Factor: These stem from the need to consider a firm’s stakeholders, especially the most important ones.
Among internal stakeholders, employees are considered a priority group. As for external stakeholders, note should be
taken of the increasing importance of consumers when they apply social, environmental, or ethical criteria in their
buying decisions.

3. Strategic & Competitive Factor: Social responsibility may also enable a company to improve its competitive
positioning and create value.

4. Ethical-moral Factors: This is linked to a company’s values and ethical behaviour of its shareholders and management,
as well as those of the society in which it operates. This means that society’s ethical criteria tend to be more readily
assumed by a company and exert pressure on it to perform in a socially responsible manner
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Business Ethics
Definition: Aims:
To answer the following questions:
a) What is right/wrong
Refers to the moral fundaments
b) What is good/bad
that characterize the relationship
c) What is beneficial/damaging
that firms maintain with social
regarding the decisions and actions in
agents or stakeholders
business transactions?

Ethical Issues:
1. Environmental pollution
2. Harmful products
3. Ill-gained profit
4. Bribery
1
5. Use of private data for commercial purposes 2
6. Child labour

Navas, 2022 (v. 6.1

Business Ethics
Ethical Code / Code of Conduct:
Benefits of Ethical Stands: There is a need to spell out the moral content
1. it builds trust among stakeholders and the firm of what is and what is not acceptable and
2. It saves on costs (litigation, fines etc) implement the appropriate mechanisms for
3. It helps to avoid bad reputation ensuring employees’ general conduct is
4. It prevents a fall in employee productivity, creativity,
and remain ethical .
and loyalty

Ethical Codes Include:

1. Behaviours expressly forbidden
2. Positive values
3. Procedural guidelines
4. Sanctions by corporate: (warming, demotion, dismissal)
1
By Courts( civil, criminal, administrative) 2
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Chart summary
THE ORIENTATION FUTURE OF THE COMPANY
• Conceptsofvision,missionandvalues
• VariablesfortheIDofeachoneofthey
• Issuesofhisdefinition
• Utilityofeachoneoftheconcepts
THE GOALS STRATEGIC
• Thegoalsstrategicastoolfortheachievementofthevisionandthemission
• Criteriaforthedefinitionofthegoalsstrategic
• Guysofgoalsstrategic
THE CREATION OF WORTH AS AIM OF THE COMPANY
• Themeasurementof theperformanceofthecompanyasindicatorofhissuccess
• Themeasurementof theperformancetothroughofindicatorsofbenefiteitherprofitability:Indicators
accountantsandindicatorseconomic
• Themeasurementof theperformancetothroughofindicatorsofcreationofworth:worththeorist,worthof
marketandworthforheshareholder
• Criteriaofreferenceformeasurethecreationofworthforheshareholder

© Guerras and Navas, 2022 (v

 Videos: pills strategic

The orientation future of the company

Further teaching resources in © Guerras and Navas, 2022 (v

Readings
recommended

DAVID, FR; DAVID, FR (2017): “ Strategic [Link]

competitive advantage approach, concepts and cases ”,
Pearson, Boston, 16th edition (Edition global), chapter 5 .

FITZROY, P.; HULBERT, JM; O'SHANNASSY, T. (2016):

“ Strategic management. The challenge of creating value ”,
Routledge, London, 3rd edition, chapter 6 .

FERNANDEZ, P. (2005): "Creation of value for shareholders:

Definition and quantification", Universeia Business Review , No. 6,
pp. 10-25.

© Guerras and Navas, 2022 (v